On Monday, oil prices surged while global bond markets experienced instability due to escalating tensions in the Middle East, raising concerns over inflation and potential interest rate hikes by central banks. Brent crude, the global oil benchmark, climbed following an attack on a nuclear power facility in the United Arab Emirates. This development coincided with stalled peace negotiations between the United States and Iran, now in their sixth week of a ceasefire. Former President Donald Trump intensified the situation with a social media post warning Iran to act swiftly or face severe consequences, stating, “For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them. TIME IS OF THE ESSENCE!”
Brent crude saw an increase of up to 1.77%, reaching $111.16 per barrel, its highest in nearly two weeks early Monday, before settling at $110 per barrel. This adjustment came after Iran indicated it had responded to a new U.S. proposal aimed at resolving the conflict. Esmaeil Baqaei, spokesperson for Iran’s foreign ministry, noted that communications were ongoing through a Pakistani mediator, but did not disclose further details.
The global bond market reflected the uncertainty, with the benchmark 10-year U.S. Treasury yield peaking at 4.631%, the highest since February 2025, before easing back to 4.599%. In the United Kingdom, the 10-year gilt yield reached 5.19%, surpassing its 18-year high set last Friday, later retreating to 5.15%. Political uncertainties in the UK, including potential leadership challenges facing Prime Minister Keir Starmer from Manchester’s Mayor Andy Burnham, are contributing to the volatility. Meanwhile, UK Chancellor Rachel Reeves and other G7 finance ministers convened in Paris to discuss the economic implications of the Middle Eastern conflict.
Concerns over the UK’s fiscal situation were highlighted by Mohit Kumar, chief economist at Jefferies, who remarked on investors’ fears of a potential “shift to the left” in UK politics. Kumar pointed out that the government is already struggling with fiscal constraints, making further public spending increases challenging. According to him, additional tax hikes are unlikely to yield significant revenue. Kathleen Brooks of XTB suggested that UK bond yields might stabilize if markets perceive Burnham as moving away from high-spending approaches, with the key test being whether the 10-year yield can dip below 5%.
Elsewhere, Japan’s bond yields increased as the government prepared to issue new debt to mitigate the economic impact of the Middle Eastern crisis. The 10-year yield in Japan reached nearly a 30-year peak of 2.8% on Monday. European stock markets opened lower, with the Stoxx Europe 600 index dropping by 0.7%, and the UK’s FTSE 100 showing little change. In Asia, Japan’s Nikkei and Hong Kong’s Hang Seng index both fell by about 1%, while Shanghai’s SSE Composite declined by 0.1%. South Korea’s Kospi, however, closed 0.3% higher.